Terex announced second quarter 2013 net sales in its cranes segment of $521m, up 3% from $505m in the same quarter last year. Despite the overall increase in net sales for the segment, income from operations declined from $50m to $23m: reported operating margins slipped from 10% to 7%.
Talking to analysts, Terex Cranes president Tim Ford said that while pricing was slightly stronger, both product and geographic mix had hit margins. For example, Ford said that sales in Australia, which had been a very good market for the company for the past couple of years, were now down 20-25% year-on-year. While there had been order improvement in large crawler cranes for the second consecutive quarter, Ford noted that overall the company had seen an increase in sales of some lower margin product categories, and a slight decline in higher margin products.
Customer uncertainty around the world had also had an effect on sales. Chairman and CEO Ron DeFeo said that at Bauma the company had got ‘a lot of love, but not a lot of conversion when we got home’. Ford said ‘a lot of deals are taking a very long time to close. These are big complex transactions, and our customers are uncertain about where the economy is’.
That uncertainty was apparent in Latin America. Here, Ford said, "The economic environment is more uncertain today than it’s been in several years, largely driven by Brazil."
Around the world, DeFeo said, the company had made substantial investments. As in Latin America, the outlook for India ‘isn’t very good’, and the company will be making changes to its cost structure. In China, DeFeo stressed the company’s investment was for the long term.
The results showed a continued change in the market share of the company’s main markets: Western Europe’s share of net sales has dropped from 25% to 16%, while North America’s has increased from 36% to 45%. In North America, Ford said, customers were seeing high utilisation rates and improving pricing; in Europe, utilisation rates are mediocre and pricing is challenging.
Terex is taking steps to reduce costs and improve margins, recording charges of $15m in the crane segment this quarter, that it says will result in an annual benefit of $16m. The company aims to cut around 200 jobs from its workforce in Germany, with the bulk going from its Wallerschied facility, where Terex builds all terrains with capacities of up to 350t.
The company said separately it was cutting 54 jobs and moving to single shift working at its Waverly plant, where it builds truck cranes and rough terrains. The changes at this site, however, are expected to be temporary and the plant should return to previous staffing levels by the end of the year.
Terex is continuing with its plans to restructure its cranes business, moving away from focusing sales and service on specific manufacturing locations to aligning its business overall with broad geographies.
The company reported crane backlog of $581m this quarter, down from $815m last year. Asked about this, DeFeo said the company was taking a stricter approach to the orders it accepted and pointed out that shipments had remained flat, adding, "The $815m backlog of last year included over $100m of prepositioned orders by our customers, thinking that they would get pricing for the future year, and we canceled their orders. Our initiative is to get margins up and to get a return for the business that we have.
"Many of our customers expected us to inventory product for them and hold it after we produced it. Kevin Bradley [former president of Terex cranes] started to change some of that, and Tim Ford is continuing to."
